Inflation in the UK came up again in July, according to the Office for National Statistics. Prices measured through the Consumer Prices Index including housing costs rose 4.2% over the year, compared with 4.1% in June. The regular Consumer Prices Index, which leaves out housing, went up from 3.6% to 3.8%.
CPIH was unchanged from June, while CPI went up 0.1%. The ONS said air travel costs were the main factor pushing the rate higher, though housing and household services pulled it down slightly.
CPIH is now at its highest level since October 2023. These numbers show the pressure many households face in their day to day spending, especially during the peak summer travel period.
What Made Prices Go Up?
The ONS data shows that transport costs played the largest part. Air fares went up 30.2% between June and July, the steepest July increase since 2001 when monthly data collection began. The rise was linked to the timing of school holidays which pushed return European flights into the pricier period.
Motor fuel prices also came up. Petrol rose 2.0 pence per litre in July compared with a fall of 1.4 pence last year. Diesel rose 2.9 pence per litre compared with a fall of 1.1 pence in July 2024. Even with those monthly rises, fuel prices were still down compared with a year earlier, but less sharply than before.
Other areas that went up included hotels and restaurants where overnight stays cost more, and food and non-alcoholic drinks which rose 4.9% over the year, up from 4.5% in June. The strongest price growth was seen in beef, chocolate assortments, instant coffee and fruit juice.
How Are Shoppers Reacting?
Research from Klaviyo shows that shoppers are adapting. Out of 500 people surveyed in late July, 71% said they had changed how they buy clothing, electronics and home goods because of higher prices.
Tariffs are also on people’s minds. Around 74% said they were worried about how tariffs will affect the cost of goods. Nearly half said their holiday shopping was affected, while 15% are rethinking trips abroad.
What Does The UK Inflation Mean For Interest Rates?
We have also asked experts what they think this rise will mean for interest rates in the uK. Here’s what they think…
Our Experts:
- Ben Jackson, Managing Director EMEA, Klaviyo
- Peter Stimson, Director of Mortgages, MPowered
- Gerard Boon, Managing Director, Boon Brokers
- Lee Holmes, CEO, INFINOX
- Scott Dawson, CEO, DECTA UK
- Christie Cook, Managing Director of Retail, Hodge Bank
Ben Jackson, Managing Director EMEA, Klaviyo
“It’s clear that consumers are tightening their belts in the face of economic uncertainty. In fact, almost three quarters (71%) of UK consumers say they are changing how they shop due to rising prices and economic uncertainty. At times like this, brands who consumers like and trust will be best positioned to weather the economic storm.
“Understanding customer data so brands can personalise experiences will help build lasting loyalty that will drive revenue. In today’s climate, the brands that win won’t be those who spend the most, but those who know their customers best and cater to their needs.”
Peter Stimson, Director of Mortgages, MPowered
“This latest jump in inflation will slam the door on the prospect of any meaningful reduction in mortgage interest rates in the coming weeks.
“Inflation is back with a vengeance and the Bank of England’s prediction that CPI will hit 4% in September, which caused gasps when it was made less than a fortnight ago, now looks almost rose-tinted.
“At 3.8% a year, prices are now rising at nearly double the Bank’s 2% target, and this will force the Bank to rein in consumer spending by delaying any further reductions to the base rate. Hopes of another base rate cut this year now look decidedly optimistic.
“The mortgage swaps market, which tracks interest rate expectations and is used by mortgage lenders to determine the fixed interest rates they offer to borrowers, had been suggesting that the next base rate cut might come in November.
“But the painful jump in inflation means that base rate cut may now be pushed back into 2026, and as a result we are unlikely to see any further rate cuts from lenders in the immediate term.
“Competition between lenders is intense but mortgage rates may well have fallen as far as they can for now. They may even creep up over the next month or so as lenders recalibrate in response to rising swap rates.”
Gerard Boon, Managing Director, Boon Brokers
“With UK inflation rising to 3.8% in July – the highest since January – the Bank of England faces a difficult balancing act. While economic forecasts suggest interest rates may fall in the coming months, persistent inflation will make any significant cuts in borrowing costs unlikely in the short term.
“Amidst this, falling interest rates, potential stamp duty reforms, and pressure in the rental market, house prices are continuing to climb. Rents are surging as large institutional investors snap up buy-to-let properties in bulk, reducing competition among smaller landlords and inciting current tenants toward buying, ironically, as a way to help save money.
“As a result, the effect of inflation is clear: even with short-term interest rates unlikely to significantly drop, borrowing costs remain historically low. Combined with rising rents and potential stamp duty cuts, this makes homeownership increasingly attractive, pushing demand and prices much higher.
“In short, rising inflation constrains the Bank of England’s ability to lower rates, and the knock-on effects are being felt across the housing sector. Far from signaling a market correction, the current dynamics suggest that property inflation will continue to be a significant challenge for the UK in the years ahead.”
Lee Holmes, CEO, INFINOX
“The latest rise in UK inflation to 3.8% – the highest since January – complicates the picture for the Bank of England. While markets had begun to price in the possibility of rate cuts later this year, persistent inflationary pressures will likely force policymakers to keep rates higher for longer.
“For the tech and business community, this means the cost of capital will remain elevated, which could weigh on investment appetite, funding rounds, and broader corporate growth. At the same time, for investors and traders, today’s data introduces more volatility across sterling, equities, and bond markets.
“Ultimately, the inflation trajectory will dictate the timing and pace of interest rate adjustments. Until there is clearer evidence of easing price pressures, both businesses and markets should prepare for an extended period of restrictive monetary policy.”
Scott Dawson, CEO, DECTA UK
“The rise in UK inflation is a major concern, putting pressure on the Bank of England to reconsider the pace of interest rate cuts. The Bank of England has already raised its inflation forecast for the year and is predicting a peak of 4% in September.”
“For fintechs, this economic environment could mean a shift in investment strategy. In a post-cheap-credit era, venture capital is tightening, leading to a new focus on resilience over reckless risk. This means investors may favour innovations with a clear purpose and practical application over novelty for its own sake. Innovation for the sake of innovation, detached from purpose or regulation, often leads nowhere.”
“For SMEs, the rising costs, fuelled by higher taxes and minimum-wage hikes, are likely being passed on to consumers. This further erodes customer goodwill, which is crucial for businesses to thrive. If the “rot economy” reaches the payments industry, companies may be forced to cut services, be more conservative with their risk profile, avoid new technology, and raise prices to stay afloat. Ultimately, this risks creating a world where both merchants and consumers cannot trust the payments ecosystem.”
“Businesses can maintain trust in payments by prioritising transparency with customers, investing in secure and reliable payment technologies, and carefully managing pricing strategies to avoid sudden increases. By demonstrating stability and responsiveness, companies can reinforce confidence even in a challenging economic environment.”
Christie Cook, Managing Director of Retail, Hodge Bank
“Inflation at 3.8% is still running hotter than the Bank of England would like, and that keeps policymakers cautious even after the latest cut to 4%. The Bank needs to see clear and sustained progress back towards the 2% target before it can ease further, which means borrowing costs are likely to stay where they are for some time.
“For households and businesses, that translates into a period of higher-for-longer rates than many had hoped. Markets will remain extremely sensitive to each inflation release, with gilt yields and sterling moving in step as expectations shift.”
